The cotton is high, and apparel prices will soon follow

High cotton prices are reducing the profitability of the apparel industry and will soon begin to appear on the register.
Cotton has soared in recent months, closed Wednesday at $ 2.05 (U.S.) per pound, compared with less than 80 cents a year ago.
Floods in Pakistan, the drought in Russia, forest fires in Australia and hail in Texas have hurt the cotton crop. At the same time, demand fromemerging markets like China has soared, and speculators have accumulated in the market, establishment of a commodity in the game.
There is no significant relief in sight. "While cotton prices are expected to decline from current record levels, it is likely that prices will remain substantially higher than the average of 60 cents per pound that prevailed during the past decade," said the International Advisory Committee Cotton in a recent report.
"Factors such as competition for food crops, limited resources (land, seeds, water and equipment), and government policies prevent [the cotton-growing areas] to rise further."
Companies that use cotton as an ingredient have felt the pinch and are responding by passing on costs of the line.
Gildan Activewear Inc. (GIL-T31.16-0.18-0. 57%) recently reported that its gross margins were affected due to higher cotton, energy and other input costs, falling 24.7 percent last quarter compared to 29.8 percent in period last year.
The Montreal-based company has increased its prices by a total of 27.5 percent through five hikes in the last year, said Laurence Sellyn, executive vice president and CFO.
While manufacturers and retailers against admitting a fine line between maintaining profit margins and keep customers, said Cotton represents nearly half of production costs and increases Gildan need to be transmitted.
"So far, demand has been negatively affected," he said, adding that with the latest price increase the company should be able to cover the cost of cotton to $ 1.50 per pound. It takes about six months for cotton to find its way from factory to retail racks, that is, products today are manufactured in the spot market price for cotton was about $ 1 a pound .
Gildan not to announce the price increases, but the latter was probably produced as recently as March 18, Jessy Hayem of TD Securities Inc., wrote in a note. Other clothing companies, including Hanesbrands Inc. (IES-N25.400.311.24%) and Berkshire Hathaway Inc. 'S Fruit of the Loom, have not yet submitted a corresponding increase in prices, but dealers expect full, as have done in the past, he said.
Any unexpected drop in cotton prices would give a lift to share the profits of these companies, he added.
"I can tell in this environment, all the clothing companies are raising prices, and retailers are seeing everywhere," said Rich Noll, president and chief executive of Hanesbrands Earnings Conference Call last month.
Predicted moderate increases in prices for the sector during the first half of the year, from the middle finger only. "It really is not until the return to school ... that will begin to see these larger increases work their way through," he said.
Reitmans (Canada) Ltd., the country's largest specialty apparel chain, also warned of the impact of rising cotton prices in its quarterly filing last December. "A recent increase in cotton prices at record prices, an important component in the manufacture of clothing, along with a significant shortage of supply is expected to exert pressure on margins for certain product," she said.
The Montreal-based company plans to release its latest earnings results next Wednesday, when analysts expect an update on the effect of commodity prices are having on business.